INTERFCAE BETWEEN COMPETITION LAW AND CUSTOMER WELFARE

ABSTRACT

With the liberalization of the economy and enhancement of market competition, the role played
by Competition Commission as a regulator gains utmost importance. The Honble Supreme Court
in Ashoka Smokeless Coal Ind. P. Ltd. v. Union of India (2007) 2 SCC 640 has observed that in a
market governed by free economy where producers fix their own prices. A level playing field is
the key factor in a new economy. The aforesaid level playing field can be achieved when there is
a choice and competition in the market for procurement of goods. If the policy of the open market
as to be achieved the benefit of the consumer must be kept uppermost in mind by the State. This
essay explores the correlation between consumer protection and the Competition Commission of
India. The essay begins by explaining perfect market conditions and ideal consumer behavior and
then goes on to discuss what variations are present in reality. The author explains the need for
rational behind consumer protection and also goes on to explain the different standards on which
consumer protection policy can be based. The author goes on to discuss the scope and preview of
the concept of consumer under Indian law. The evolution of the competition law of India is also
critically analyzed for a better understanding of how the needs of consumer protection changed
over time. The essay goes on to discuss the effects of anti-competitive practices on the consumer
and how the law provides for inquiry into alleged contravention of provisions relating to anti-
competitive agreements, abuse of dominance and combinations by the Competition Commission
of India. There undergoes a review of the cases accepted by the Competition Commission of India
and a critical analysis of the reasoning behind various decisions. To conclude the author argues
that the Competition Commission of India plays a vital role in consumer protection by regulating
the quality of the market.

Introduction

To understand the need for regulation of the market to protect consumers we can look to the
concept of a perfect market as a reference point. Even though the system of a perfect market is
unattainable in reality, Trivedi argues that an inference can be drawn from the free market
economic theory that if the characteristics of a perfects market are obtained there would no longer
be a need for regulation.1 Ramsay suggests the following characteristics of the perfect market:

There are numerous buyers and sellers in the market, such that the activities of any one economic
actor will have only a minimal impact on the output or price of the market.2

There is free entry into and exit from the market.

The commodity sold in the market is homogeneous; that is, essentially the same product is sold
by each seller in the particular market.

All economic actors in the market have perfect information about the nature and value of the
commodities traded. All the costs of producing the commodity are borne by the producer and all
the benefits of a commodity accrue to the consumer that is, there are no externalities. The theory
of a perfect market can be looked at in conjunction with the theory of consumer choice.3 The theory
of consumer choice assumes that consumers are rational maximizers of their own satisfaction. The
theory suggests that the consumer knows what he wants and will make a logical and consistent
choice. Secondly that the consumer will influence the producers and influence the way a market
operates. The choices a consumers makes indicates to the producer of goods and services about
the consumers needs and wishes. If a producer does not respond to consumer needs the producer
will lose customer and will be forced to exit the market.

A perfect market exists only where the requirements set out by Ramsays list are met. We may still
have a competitive market where not all the qualities of a perfect market are present. Similarly it
can be recognized that different consumers may be willing to endure different levels of product
safety and quality for different amounts of money.4

There is a need for consumers protection based on the rational that a consumer is a weaker party.
Consumers are considered to be weaker than their contracting sellers as they are unable to protect
their interests due to the lack of bargaining power. This view is based on the exploitation theory
which argues that consumers are in need of protection for two reasons. First being that consumers

1
M.L.Trivedi, Managerial Economics- Theories and Applications (Tata McGraw-Hill Edication, New Delhi, 2002).
2
I. Ramsay, Rationales for Intervention in the Consumer Marketplace (Office of Fair Trading, UK, 1984).
3
R. Sexton, Exploring Economics (Cengage Learning, Ohio, USA).
4
J. Behar, Cooperation and Competition in a common market place (Physica-Verlag Heidelberg, Germany, 2008)
have fewer options than a perfect market and have to purchase and contract terms set by large and
powerful companies. Second being companies being able to exploit significant information and
sophistication disparities in their favor.

Though more recently the exploitation theory has been disregarded as a viable justification for
consumer protection, as it does not take competition as a consideration while analyzing the market,
it still provided a vital direction to the early argument of consumer protection. Economists argue
that consumers today are deemed in need of consumer protection from an economic perspective
not on the basis on being a weaker party at risk of exploitation but because consumers know less
about the product and contracts than professionals.8 Thus the absence of an ideal market and an
ideal consumer make an environment where presence of a regulatory body is of utmost importance.

What is consumer welfare?

The concept of consumer welfare is concerned with efficient transaction and cost-saving and with
social aspects related to market safety and health of consumer.5 In economics the term is well
defined. In the Marshallian demand curve analysis consumer welfare equals the difference between
what the consumer is willing to pay and he/she actually pays.6 However the term is much debated
in the world of anti-trust law. There are two groups, one which holds that the term should mean
consumer surplus7and the other group asserts that it should mean aggregate welfare or total
welfare.8Thus there are two standards, one supporting the maximizing of consumer surplus i.e.,
consumer welfare standard approach and the other focusing on productive and allocative
efficiency in the market i.e., total welfare standard approach.

Competition law strives to achieve the goal of consumer welfare by regulating conduct between
enterprises in the market. It lays down the legal framework for standard of proof required for
investigation and litigation.9 On the hand consumer law deals with interaction of consumer with
the enterprises with the effort to ensure a balance of power by giving the consumer information

5
9 K J Cseres, The Controversies of the Consumer Welfare Standard, 3(2) Compl. Rev 122 (2006).
6
C.W. Guilebaud, The Evolution of Marshalls Principles of Economics, 52 ECON.J. 344-349 (1942)
7
Joseph F. Brodley, The Economic Goals of Antitrust: Efficiency, Consumer Welfare, and Technological Progress,
62 N.Y.U.L. REV 1020 (1987); see also John B. Kirkwood and Robert H. Lande, The Fundamental Goal of Antitrust:
Protecting Consumers, Not Increasing Efficiency, 84 NOTRE DAME L. REV 191 (2008).
8
Dennis W. Carlton, Does Antitrust Need to be Modernized?, 21 J. ECON PERSP156 (2007); see also Gregory J.
Werden,Monopsony and the Sherman Act: Consumer Welfare in a New Light, 74 ANTITRUST L.J. 707 (2007)
9
K J Cseres, Competition Law and Consumer Protection 307 (Kluwer Law International, Netherlands, 2005).
necessary to make a rationale choice. It aims to achieve consumer welfare by improving position
of consumer in market transactions. While it is clear that competition law and consumer law strive
to achieve the same goal, they pursue different standpoint and have different approaches to solve
the goal. Yet these two fields complement each and achieve best for consumer interest when they
are harmonized.

Who is a consumer?

Who then is a person who would be subject of the efforts of these two disciplines? The term
consumer from an economic perspective understood as the final user of goods or services
produced, manufactured and distributed for the purpose of consumption.16 However under the
legal framework of India the term means different thing under the Consumer Protection Act, 1986
and the Competition Act, 2002.

A consumer under Section 2(1)(d) of Consumer Protection Act, 1986 means any person who buys
any goods or hires or avails any services for a consideration which has been paid or promised or
partly paid and partly promised, or under any system of deferred payment and includes any other
user of such goods or beneficiary of such services other than the person who buys any goods or
hires or avails any services for consideration paid or promised or partly paid and partly promised,
or under any system of deferred payment, when such use is made with the approval of such person.
The definition excludes a person who obtains such goods for resale or for any commercial purpose
or hires or avails of such service for any commercial purpose.1

While interpreting the term commercial purpose the Honble Supreme Court of India observed
that by introducing an explanation to Section 2(1)(d) and using therein terminology such as uses
them by himself, exclusively for the purpose of earning his livelihood and by means of
selfemployment the Parliament intended that for exclusion from the use of good from commercial
purpose the same must be for the buyer himself, by employing himself for earning his livelihood.18
Like the Monopolies and Restrictive Trade Practices Act, 1969 the Competition Act, 2002
provides for third parties to bring a complaint before the Competition regulatory body. 19 The
Competition Commission may inquire into the alleged contravention of the law on anticompetitive
agreements and abuse of dominance on its own motion or on receipt of complaint from any person,
consumer, or their association or trade association or on a reference made to it by the State
Government or Central Government or a statutory authority.20 The term consumer under
Competition Act, 2002 is of wider ambit than that in Consumer Protection Act, 1986. The
competition policy is concerned with the supply-side and behavior of firms while the focus of
consumer policy is on the demand-side structure of markets.21 Under Section 2(f) of the
Competition Act, 2002 a consumer means any person who buys any goods or hires or avails any
services for a consideration which has been paid or promised or partly paid and partly promised,
or under any system of deferred payment and includes any other user of such goods or beneficiary
of such services other than the person who buys any goods or hires or avails any services for
consideration paid or promised or partly paid and partly promised or under any system of deferred
payment, when such use is made with the approval of such person. It includes buying of such
goods for resale or for any commercial purpose or for personal use and hiring or availing of
services for commercial purpose or personal use. Therefore the Competition Act, 2002 protects
consumer rights even when the consumer is means to use the good or services for resale or
commercial purpose.

Evolution of Competition Law in India It is pertinent to understand that the ability of the buyer of
a good or service to approach the Consumer Protection Redressal Forum or the Competition
Commission has been framed by the historical development in the field of competition law in
India. In 1969 the Monopolies and Restrictive Trade Practices Act was after the Parliament
considered the report of the Monopolies Inquiry Commission that had identified concentration of
economic power in the hands of a few large industrial houses. This concentration of power arose
in an era of rigid control by the central government of issue of capital by companies, issue of
industrial licensing, etc.22 The MRTP Commission introduced Part B on Unfair Trade Practices
and their regulation by an amendment in 1984 through Sections 36A and 36E. In 1985 the United
Nations General Assembly passed what is known as Consumer Protection Resolution No.
39/248 indicating therein guidelines which governments could adopt for better protection of
interest of consumer. Indian government which was signatory to the resolution enacted the
Consumer Protection Act, 1986 for simpler and quicker redressal of grievances of 22 T.Rampappa,
Competition Law in India: Policy, Issues and Developments 13(Oxford University Press, New
Delhi, 2nd edn., 2012). consumers.23 The Act provided consumers with certain rights including
right to safety, right to information, right to choose, etc. which formed the Consumer Charter under
Section 6. The Consumer Protection Act, 1986 was farmed with the aim of protecting consumers
from unfair practices of the business community, but the Act originally did not have a definition
of unfair trade practice. In 1993, Section 2(1) (r) was incorporated and provided a self-contained
code on Unfair Trade Practice on the lines Section 36A of the Monopolies and Restrictive Trade
Practices Act, 1969.24 Considering the changed business environment post- liberalization and
globalization, the government felt the requirement to appoint a high-level Committee, under the
chairmanship of S.V.S. Raghavan to study the economic scene and make recommendations for a
competition policy to meet the needs of the new business environment in the country.25 Among
its suggestions it mentioned the need for a Competition Law Tribunal (Competition Commission
of India) to be the watchdog for introduction and maintenance of competition policy. Competition
law was to deal with anti-competitive practices particularly cartelization, price-fixing and other
abuses of market power and should regulate mergers.26 It also recommended for the transferring
of provisions dealing with Unfair Trade Practices to Consumer Protection Act, 1986 and
enacting a new law on competition expediently.27 Accordingly the Government passed the 23
R.N.P. Chaudhary, Consumer Protection Law: Provision and Procedures 20( Deep and Deep
Publications, New Delhi, 2005). 24 Law Commission of India, 199th Report on Unfair (
Procedural and Substantive) Terms in Contract( August, 2006). 25 T.Rampappa, Competition Law
in India: Policy, Issues and Developments 6(Oxford University Press, New Delhi, 2 nd edn., 2012).
26 Report of the High Level Committee on Competition Policy and Law, 2000, para. 2.9.7. 27
Ibid, para 7.2.2. Competition Act, 2002 which provided for establishment of the Competition
Commission of India to achieve objects of the Act.28

Effect of Anti-competitive practices on consumers For the purpose of addressing its duty to
eliminate practices having adverse effect on competition, promoting and sustaining competition,
protecting the interest of consumers and ensuring freedom of trade carried on by other participants
in markets in India,29 the Act provides for inquiry into alleged contravention of provisions relating
to anti-competitive agreements, abuse of dominance and combinations by the regulatory body. The
Act provides not only for protection of trade but also protection of consumer interest.30 Section
3(1) is a general prohibition of any agreement in respect of production, supply, distribution,
storage, acquisition or control of goods or provision of services, which causes or is likely to cause
an appreciable adverse effect on competition within India.31 Section 3(3) deals with agreements
between the competitors at the same stage of production in the same market. Such horizontal
agreements are presumed to have appreciable adverse effect on competition.32 On the other hands
agreements which are between parties at different stages of production level and thus in different
markets is considered to be violative of Section 3(1) only if they have appreciable adverse effect
on competition. Thus while Section 3(1) and Section 3(3) is concerned with per se rule, Section
3(4) is to be tested on the basis of rule of reason. The restraint should not destroy competition and
to determine the court must ordinarily consider peculiar facts of 28 The Competition Act, 2002
(Act 12 0f 2003) s 7. 29 The Competition Act, 2002 (Act 12 0f 2003) s 18. 30 Competition
Commission of India v. Steel Authority of India Civil Appeal No. 7779 of 2010 decided on 9th
September 2010. 31 T.Rampappa, Competition Law in India: Policy, Issues and Developments
57(Oxford University Press, New Delhi, 2nd edn., 2012). 32 The Competition Act, 2002 (Act 12
0f 2003) s 3(3). each case.33 To determine an appreciable adverse effect on competition the
Commission considers among other factors the accrual of benefit to consumers.34 For determining
an abuse of dominant position35 by an enterprise the Commission gives regard to various factors
including dependence of the consumers on the enterprise.36 Section 6 makes combinations
amongst person or enterprises subject to the same test of not having appreciable adverse effect on
competition within the relevant market. Thus competition law in India takes into account consumer
interests. In certain cases the Competition Commission finding no prima facie basis rejected the
matter exercising its powers under Section 26, but in some others it has taken the consumer welfare
standard approach while determining existence of anti-competitive practice having appreciable
adverse effect on competition. The consumer welfare standard approach is apparent in Belaire
Owners Association v. DLF Limited, HUDA & Ors37 where the informant had entered into
standard form contracts with DLF Limited for allotment of apartments in their Group Housing
Complex. The Commission directed the Director General to investigate into allegation of unfair
and arbitrary terms in the contract in abuse of dominance by DLF. DG found the various clause of
the agreement as violative of Section 4(2)(a) of the Act. The DG report took note of the effect on
consumer stating the presence of information asymmetry. It stated that DLF formed the high-end
residential market of Gurgaon and a customer wanting a flat would not approach even a lower
priced flat in other part of Gurgaon. CCI considered the report of the DG and observed that the
terms of contract were 33 Board of Trade of City of Chicago v. US 246 US 231 (1918) 34 The
Competition Act, 2002 (Act 12 0f 2003) s 19(3) (d). 35 The Competition Act, 2002 (Act 12 0f
2003) s 4. 36 The Competition Act, 2002 (Act 12 of 2003) s 19(4) (f). 37 Case No.19 of 2010.
unfair being in disregard on consumers rights. Such a practice by the dominant firm might be
cause for small players to follow suit. The Competition Commission of India took this approach
in the case of Ramakant Kini v. Dr. L.H. Hiranandani Hospital38 where the opposite party required
that patients seeking maternity services to use the stem cell supplier service of Cryobank
exclusively and did not inform the informant that outside stem cell body would not be allowed
inside to collect stem cell. It limited the choice of consumer who wanted to avail their maternity
service to either stem cell service or choose some other hospital itself. The Competition
Commission took note of the effect on consumer observing that patients who take maternity
services of a maternity consultant develop a bond with them over time making it difficult for them
to another hospital. Passing an order under Section 27 of the Act the Commission imposed a fine
of Rs.3.81 crore on the hospital. However these are exceptional instances of consideration of
agreements which are generally considered to fall under unfair trade practices, the Commission
does not take initiate inquiry into cases where there is no prima facie case of anti-competitive
practices. There needs to be evidence which suggests existence of dominance to establish a prima
facie case for the Commission to issue directions to the Director General to investigate. In the case
of Neelam Sood v. M/s Raheja Developers Pvt. Ltd.39 wherein the informant complained of unfair
and arbitrary terms in the Flat Buyers Agreement which they had entered into with the opposite
party, a real estate developer, for the purchase of a flat in a residential complex. Finding that there
was no evidence to suggest that the opposite party held dominant position in provision of housing
services in Gurgaon, the Commission closed the case under provision of Section 26(2). 38 Case
No.39 of 2012. 39 Case No. 62 of 2011. This approach is again apparent in Ohm Value Services
Ltd. v. Janta Land Promoters Ltd.40 the informant contended that the conditions laid out in the
allotment letter by the opposite party for allotment of land for setting up non-polluting industries
were unfair and in abuse of its dominant position. Clause 6 of the allotment letter allowed the
opposite party to charge 18% interest per annum for delayed payments or cancellation of allotment
but there was no provision for the informant to charge penalty for default or deficiency on part of
the Opposite Party. The Commission observed that there was prima facie no evidence to suggest
that the Opposite party holds a dominant position in the market for industrial plots in the State of
Punjab, since it found that consumers in such a market had a choice of switching to other players
in the market if they found the terms unfavourable. Observing that there existed other market
players in the relevant market of the services for development and sale of residential units in
Gurgaon including DLF, Anantraj Group, Earth Infrastructure Group the Commission did not
consider the terms of the Floor Buyers Agreement to be violative of Section 4 of the Act.41
Therefore it is clear that the Competition Commission sometimes considers instances of unfair
trade practices though they are primarily concerned with relation between business and consumer
when the business has the capacity to influence the market by imposing unfair conditions and
leading the small players to follow suit.

Enforcement of Consumer protection through Competition laws

It is an acknowledged fact there exist an unequal relationship between the producers and
consumers. Competition Law, therefore, restricts the producers from abusing the dominant
position of theirs in the market. The Supreme Court of India has observed that the main objective
of Competition law is to use competition as a tool to promote economic efficiencies and assist in
creating the market as responsive to consumer preferences.

Using Competition as a tool bears following benefits for the consumers:

It is a means of lowering prices and improving quality. Consumer prices get lowered
because with a better degree of competition, productivity of the industries increases.
Not only consumer prices get lowered but also employment increases.
It leads to consumer empowerment because of promotion of factors like higher degree
of consumer protection, freedom of individual choice and abhorrence of concentration
of power and decentralised economic efficiency
It also aims for open market so that situations of shortages can be avoided, and therefore
allocative efficiency may be increased;
By achieving all these objectives growth and development get accelerated, and political
and economic democracy gets preserved.
It also produces better and wider choices.

It has been observed that there is a strong commonality between consumer protection policy on
one hand and competition law and policy on the other hand. An effective and efficient competition
policy if implemented in a proper manner can reduce the amount of trade barriers on entry and
exit. Such reduction in barriers can help in making the market environment more conducive for
not only promoting entrepreneurship but also for small and medium scale enterprises and their
respective growth and provide scope for consequent expansion. Competition law and Policy aims
at maintaining the ambit and process of competition between various enterprises and also provide
for remedies to behavioural and structural problems so that competition can be re-established in
the market. If all the above mentioned objectives are met then benefits like greater economic
efficiency, higher innovation, and enhancement of consumer welfare can be achieved.

Consumer welfare would be achieved because now the consumers shall have greater choices and
more availability of goods at reasonable and affordable prices. On the other hand, consumer policy
deals with the nature of consumer transactions, steps, and strategies that can help in improving
market conditions so that the consumers can effectively make an informed choice. Irrespective of
the fact that the two policies focus on varying market failures and their respective remedies, but it
is noteworthy that their aims coincide in a way that they both aim at maintenance of well-
functioning and competitive markets that promote consumer welfare. It is because of this common
feature that they are termed as mutually re-enforcing.

The ultimate objective of competition policy is to formulate such legal framework which shall
empower other policies to facilitate competitive outcomes in the country. A good competition
policy is not only an essential element of economic policy framework but also maximises
consumer and social framework. It benefits the consumers in the way that it creates a business
environment where efficient resource allocation is ultimately curbing or preventing abuse of
market power.

In the Indian matrix, along with the Competition Act, it was suggested in the Tenth Five-year plan
that a National Competition policy should also be articulated. This National Competition Policy
would reflect nations need for an accelerated economic growth and improvement in the quality of
life of the people, nations image and self-esteem etc. It was further put forth that the National
Competition Policy would help in bringing about a competitive culture among various
organisations, therefore maximising economic efficiency, protecting consumer interests and
improving international competitiveness.
Provisions in the Competition Act that enforce consumer protection

Expressly, the Competition Act, 2002 gives protection to the consumers by way of Section 4,
where it is recognised that an enterprise or group shall be termed as abusing its dominant position
if it limits or restricts technical or scientific development relating to goods or services to the
prejudice of consumers.[1] Definition of the dominant position of a firm or enterprise is gauged
by various factors. Among all other factors, it is defined as a position of strength enjoyed by an
enterprise, in the relevant market, in India, which enables it to affect its consumers or the relevant
market in its favour.

According to Section 18 of the Act, the Competition Commission of India has the power to
take suo moto action in order to eliminate practices having adverse effect on competition, promote
and sustain competition, protect the interests of consumers and ensure freedom of trade carried
on by other participants, in markets in India.

According to Section 19(4), among other factors, dominant position is also determined by the
dependence of consumers on the enterprise and entry barriers including barriers such as regulatory
barriers, financial risk, high capital cost of entry, marketing entry barriers, technical barriers,
economies of scale, high cost of substitutable goods or service for consumers. Section 19(6) and
19(7), the relevant geographical market and product market are determined by the many factors.
One of the major factors among all others is consumer preferences.

Protection from the Unfair Trade Practices and Restrictive Trade Practices to consumers

The Competition Act, 2002 does not recognise unfair trade practices. Such practices have been
recognised in the Consumer Protection Act, 1986, and any person found in contravention of such
provisions is penalised. However, the Competition Act, 2002 recognises the Restrictive Trade
Practices. A Restrictive Trade Practices is defined as the one which has the potential of bearing
effects such as preventing, distorting or restricting competition. In particular, any trade practice
that obstructs the flow of capital or resources into the stream of production can be termed as
Restrictive Trade Practice. Examples of such practice include price manipulation, the imposition
of such conditions on the delivery or supply of goods that have an effect of imposing unjustified
costs and restrictions etc.